Bold tariff reform can transform NHS service delivery

For as long as there’s a tariff, there will be a debate on how to set it.

Agreeing multi-year prices could shift the focus of the discussion from short term challenges to opportunities in the long term.

This is a realistic prospect and would be a bold way to make the most of resources agreed in the spending review.

Payment system reform was an important part of the Health and Social Care Act, which gave control of setting the national tariff to Monitor and NHS England.

Progress since then has been slow, hampered for the most part by an insistence on pushing efficiency through provider prices. The rope on this approach has fast run out and more focus on cost effective commissioning will now be needed.

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The national tariff

Affordability, after all, is a function of what you buy, what you pay and how much you need.

Smaller price reductions are likely in this Parliament and this will put an emphasis on managing demand and service change, which are key functions of commissioning and system leadership.

The 2015 Challenge Manifesto revealed a frustration across health and care at the slow pace of payment reform. It called for progress towards new mechanisms to better balance risk, support coordinated care and reward good outcomes. This position has since been adopted by a wider group of think tanks and politicians.

‘Smaller price reductions are likely in this Parliament’

Monitor and NHS England recently published early proposals for the 2016-17 national tariff. As usual, these are sensible measures to improve the current system with a good evidence base. This includes the move to a HRG4+ currency design, which would enable national prices to better reflect costs and clinical practice by constructing them around complexity and comorbidity.

These proposals are unlikely though to be a main cause of concern, should we end up to a similar position to the last two years where parts of the NHS informally and formally disapproved of the final tariff proposed. Instead, alarm will more likely come from a decision made late in the process to reduce prices across the board as part of an efficiency setting agenda.

Tough choices

Tough choices are talked about a lot in the NHS and setting the so-called “efficiency factor” is an annual example of this in action - one which the NHS Confederation has recognised as an unenviable challenge for both Monitor and NHS England.

‘Support for a long term vision can’t be undermined by short term decisions attempting to balance budgets’

It has become customary for price setting to conclude with national bodies having to achieve the near impossible - to balance risk when funding continues to lag behind demand and cost pressures. This can make the tariff process feel like “groundhog day” in the absence of a recognition that there is only so much prices can do to close the funding gap.

Support for a long term, local vision cannot be undermined by short term, national decisions attempting to balance annual budgets.

Instead, we need to be bold on reform. Monitor and NHS England have published good thinking in this area, yet discussions each year have reverted back to price cuts.

Makes planning manageable

The first bold reform we need then is to start setting prices over a longer period than one year. We’ve argued for multi-year tariffs for a while and a three year cycle is now being seriously considered.

This seems to be a sensible timeframe within which to align with multi-year clinical commissioning group allocations, longer contracts and possible pay settlements.

In earlier consultations it was found that longer cycles offer the certainty needed to encourage investment in reconfiguration and service redesign. It allows the NHS to focus on the bigger challenge of changing care and how the payment system should layer over this. These will be important priorities in a system with a greater focus on effective commissioning.

‘Tariff reform can create the environment within which service delivery is transformed’

A fixed tariff, whether that be on the actual price or on the efficiency factor, makes planning more manageable for local organisations. It would give NHS providers the stability and predictability that the Government permits industry, most notably for five years in the pharmaceutical price regulation scheme.

Naturally, more thinking will be needed on how to implement multi-year tariffs in practice. Yet, a clear message from the NHS on the need to think beyond annual cycles sends a strong signal to the Treasury as it analyses public spending in advance of funding the NHS in this Parliament. It shows how the NHS wants to get on with transformation now, if allowed the right conditions to do so.

A multi-year tariff could be the first bold reform that unlocks everything else.

It could demand a focus on getting incentives right and not coming back each year to who gets hit hardest. It could engage clinicians in a discussion about how to fund a changing care model and not lose them in reform through spreadsheets.

Tariff reform won’t deliver the NHS Five Year Forward View. As with most of finance though, it can create the environment within which service delivery is transformed.

Paul Healy is senior economic adviser (economics and regulation) for NHS Confederation